Should you buy REA Group Limited (ASX:REA) shares?

There are few shares on the ASX that have done better over the past decade than REA Group Limited (ASX: REA). In 10 years it has gone up about 1,600%. However, it’s now worth asking whether this top business is worth buying at the moment considering its strong price run. As I’m sure most readers know, REA Group is the owner of Australia’s most popular property site, realestate.com.au. It also owns several other leading Australian property sites like realcommercial.com.au, spacely and flatmates.com.au. REA Group has created a juggernaut of a property site. Being the number one means it attracts…

To keep reading, enter your email address or login below.

Enter your email below for FREE access to this article and all the content on the site. Also receive Take Stock, The Motley Fool's unique email on what's really happening with the share market. You may unsubscribe any time.

There are few shares on the ASX that have done better over the past decade than REA Group Limited(ASX: REA). In 10 years it has gone up about 1,600%.

However, it’s now worth asking whether this top business is worth buying at the moment considering its strong price run.

As I’m sure most readers know, REA Group is the owner of Australia’s most popular property site, realestate.com.au. It also owns several other leading Australian property sites like realcommercial.com.au, spacely and flatmates.com.au.

REA Group has created a juggernaut of a property site. Being the number one means it attracts the most sellers, which attracts the most buyers and so on. It’s a very helpful circle of business life and why it may always remain ahead of Domain Holdings Australia Limited(ASX: DHG).

Being number one allows it to regularly implement price increases at a strong rate. But because the advertisement price is so low compared to the overall selling cost of the property it’s still good value. A price increase with no detrimental effect is a valuable business attribute.

The problem is that REA Group is trading at 33x FY19’s estimated earnings. This is fairly expensive considering it’s growing at around 20% per year and the growth rate is likely to slow.

There are a number of promising things for REA Group. The property market slowdown should see properties take longer to sell, leading to more advertising revenue. Its loan broking business could become sizeable over time. I’m particularly excited by its overseas investments’ potential in the US and Asia – however these are not making a material contribution yet.

Foolish takeaway

It’s more attractively priced than some other growth shares like WiseTech Global Ltd(ASX: WTC), but I think there will be a time over the next year or two where it’s a more attractively priced on a price/earnings ratio basis.

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of WiseTech Global. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.